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Macro Bullishness Versus Investors’ Bearishness Towards Gold

After falling for four consecutive weeks, the U.S. Comex gold futures rebounded 0.17 percent this week, ending at $1,574.90 on Tuesday. The gold futures climbed a further 0.20 percent during early Wednesday Asian hours. The CRY Commodities index rose 0.42 percent this week after a weak performance in the past month. The Dollar Index is a mirror image of gold, rising for the past four weeks and dropping 0.27 percent this week. The S&P 500 index and the Euro Stoxx 50 index rebounded strongly by 1.42 percent and 2.53 percent respectively this week.

Central Banks’ Actions Bullish For Gold
The Fed’s Vice Chairman Yellen recently said that the Fed should continue with bond purchases and did not see any strong evidences of excessive risk-building. The Fed’s Chairman Bernanke also believed that raising interest rates too soon would affect longer-term economic recovery and lower the real returns to investors. Iwata, the Bank of Japan nominee, intends to push inflation rate as quickly as possible to two percent, buy bonds with maturity longer than three years, and possibly start bond purchases this year. The recent Euro/Dollar weaknesses due to the renewed concerns of the European debt problems will likely lead to more stimulus measures from the ECB. The Chinese government pledged to maintain a GDP growth rate of 7.5 percent in 2013, which should support gold’s demand. While the central bank’s policies are supportive for gold, the latest QE program and the rising risk appetite have led to a rise of the S&P 500 index of 8.38 percent this year compared to a fall in the gold futures of 6.02 percent.

Short-Term Investment Demand Bearish for Gold
While hedge funds have failed to buy gold recently and have maintained elevated short positions similar to the level in 2005, gold-back ETP holdings also fell to a five-month low of 2,500 tons on 4 March according to Bloomberg. However, the physical demand for gold in China and India has responded to the lower level of gold prices. In the annual budget in India, the government did not raise import duties further, helping gold’s future demand from the world’s largest gold consumer.

Kelly Smith
Sharps Pixley, London

06 Mar 2013 | Categories: Gold

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